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Journalizing Basic Business Transactions

This tutorial is designed to explain how to create journal entries for basic everyday business transactions. This is the second step in the accounting cycle.
by

Mary Collins

on 9 December 2013

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Transcript of Journalizing Basic Business Transactions

Basic Journal Entries
Marie Collins invested $100,000 of her own money into her new pet shop on January 1, 2006. The store will be named “Love thy Pet.”
For January 1, 2006, Marie paid $1,350 rent on the pet shop.
Journal entries are the recording of business transaction as they happen. In the general journal, these transactions are recorded in order of occurrence.
Orginial Book of Entry
Each simple journal entry: debits one account and credits one account.
Compound journal entries have two or more accounts that are either debited or credited. All of the debits and the credits have to equal one total for both sides of the journal entry.
In the double entry system of accounting, there is a left side, which is called the debit side. Then there is a right side, which is called the credit side. Debit does not mean increase! Credit does not mean decrease!
For January 2, 2006, Marie borrowed $50,000 by signing a 4-month, 10% note payable.
For January 5, 2006, Marie purchased pet store equipment for $7,500 in cash.
For January 6, 2006, Marie hired two salespeople to begin work on the 9th of January in the shop for a bi-weekly wage of $800 each.
This transaction requires no journal entries because assets were not exchanged at the time of this event.
For January 8, 2006, Marie receives a cash advance of $1,200 from a customer for an Irish sheep dog that will not arrive from the breeder until March 7, 2006.
For January 10, 2006, Marie received $5,500 in cash for two bulldogs sold to a customer.
For January 14, 2006, Marie purchased 2-months of pet supplies on account for a cost of $500 from Morrison pet supply store.
For January 15,2006, Marie declared and paid a dividend to stockholders of $400.
For January 31, 2006 Marie purchased a 2-year insurance policy costing $2,400 that will expire on January 31 of 2008.
For January 31, 2006, Marie paid the salespeople their bi-weekly wages.
Please Note: not all of these accounts increase on the debit side.
Not every account will appear on the financial statement of every corporation. Use only the accounts that pertain to your corporation.
These are recording keeping accounts that only increase during the year. They are emptied out at the end of the financial period, and then the process is repeats again.
These are the basic rule for normal balances of permanent accounts. The permanent accounts are assets, liabilities, and stockholders' equity accounts.
Revenue and expense accounts are considered temporary accounts. The balances in these accounts are closed to the retained earnings account at the end of each financial period.
Plaease take note that debits line up with the border while credits are always indented. You always place the debits first and the credits second. Please leave a blank line between each journal entry.
Step 2 of the Accounting Cycle
Full transcript